FBI arrests two men in alleged $110-million Real Estate Ponzi scheme
Posted by RE-Insider • Categorized as Industry News
Two owners in a Southern California real estate investment firm were recently arrested by FBI agents for allegedly using their firm to run a Ponzi scheme in which victims lost more than $110 million.
John Packard, 63, of Long Beach and Michael Stewart, 66, of Phoenix were indicted in January by a federal grand jury on 11 counts of mail fraud, three counts of bank fraud and two counts of bankruptcy fraud.
They are accused of using new investor money to make payments to early investors, while pulling out millions of dollars for themselves, as their company, Pacific Property Assets, headed to bankruptcy.
The two men created the company in 1999 to invest in apartment complexes in Southern California and Arizona. It operated from offices in Irvine and Long Beach.
As property values soared in the early 2000s, the company refinanced mortgages and used proceeds to pay investors and business expenses. The two owners also used that money to pull out millions of dollars for themselves, prosecutors said.
The indictment also charges that the company provided false financial information to one of its bank lenders, Vineyard Bank, in order to obtain loans and to maintain its line of credit with that bank. The company overstated its income, concealing the fact that it was losing money, prosecutors said.
Stewart and Packard are accused of bankruptcy fraud for allegedly withdrawing $165,000 from one of the company’s accounts and hiding the money from creditors.
The criminal charges carry a maximum sentence of 320 years in federal prison and millions of dollars in fines.
In 2012, the Securities and Exchange Commission sued Packard and Stewart, accusing them of fraud, and attempted to obtain monetary penalties from them. The lawsuit is pending.
